Why Your Will Means Nothing Without Adequate Life Cover

It is important to draft your will and think about who must inherit, but you must also ensure there is enough cash (‘liquidity’) in your estate, otherwise your executor will not be able to carry out your wishes and wrap up your affairs.

Your will sets out your wishes and who should inherit, but it does not create the funds needed to pay estate costs, settle outstanding debts and taxes, pay conveyancing attorneys to handle property transfers, and meet all the other financial obligations associated with passing away.

This is why adequate life cover is an important counterpart to a well-drafted will, and a key component of a solid estate plan.

What is estate liquidity?

This is the amount of cash available in an estate after a person passes away. On paper, an estate may appear wealthy, but it could still face serious cashflow challenges. For example:

• Family home worth R4 million
• Investments totalling R800 000
• Vehicle worth R200 000
• Cash in bank account totalling R200 000
• ESTATE VALUE R5 million

Things might appear to be financially secure, but there will be many estate-related costs to pay before any of these assets can be transferred to the beneficiaries.

What happens if there is not enough cash?

Let’s assume estate costs, outstanding debts and taxes, administration fees, conveyancing attorney costs, and other financial obligations exceed the available R200 000 cash in the bank in our example.

If an executor must find liquidity, the only practical option could be to sell assets. In many cases that is a property. So, instead of inheriting the family home as envisioned in the will, beneficiaries may receive only what’s left after it’s sold and costs have been settled.

Doesn’t my will protect my family?

Your will provides instructions. It does not provide funding. A will alone does not guarantee an inheritance. The estate must first satisfy the legal and financial obligations before beneficiaries can receive any assets as their inheritance. Without adequate estate liquidity, even carefully planned wishes may be difficult or impossible to carry out.

Why do families sometimes wait years?

Winding up a deceased estate in South Africa takes months, often years. Capital Legacy aims to wind up most estates within 12 months but this depends on the complexity of the estate.

While the estate administration process runs its course:

• Bank accounts are usually frozen;
• Property transfers are delayed; and
• Assets cannot be distributed.

While every estate is different, families often face lengthy waiting periods before they can inherit. If immediate cash needs arise and cannot be met, financial pressures will mount quickly.

How does life cover help in estate planning?

Life cover creates liquidity when it is needed most. Rather than forcing the estate to sell property or investments, life cover can provide the necessary cash while preserving assets for beneficiaries. This allows your estate plan to function as you had intended and your wishes to be honoured as set out your will.

What is a Legacy Protection Plan®?

Life cover can provide your loved ones with valuable financial support after your passing, helping to replace income, settle debt and provide for future needs. However, many families are unaware that there are also costs and legal fees associated with winding up an estate, which can reduce the value of the assets eventually passed on to beneficiaries.

We designed the Legacy Protection Plan® as an insurance product that specifically covers these costs. Available at affordable monthly premiums, it is a solution that can help protect (‘indemnify’) against:

• Executor fees
• Conveyancing attorney fees
• Testamentary trust fees

Additional options provide more benefits, including liquidity, to help families cover the expenses that arise during the estate administration process.

The strongest estate plans combine clear instructions with adequate funding. Without liquidity, your estate could be asset rich but cash poor. When that happens, the legacy you intended to leave behind may look very different from the one your family ultimately receives.

Contact us to draft or update your will, and ensure your estate plan stands the test of time.